TY - JOUR
T1 - How economic policy uncertainty affects the cost of raising equity capital
T2 - Evidence from seasoned equity offerings
AU - Chan, Yue Cheong
AU - Saffar, Walid
AU - Wei, K. C.John
N1 - Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2021/4
Y1 - 2021/4
N2 - Economic policy uncertainty (EPU) increases the cost of raising equity capital, especially when the economy is weak. A one standard deviation increase in the EPU index developed by Baker, Bloom, and Davis (2016) is associated with a 43 basis point increase in the price discount of seasoned equity offerings (SEOs) during the 2000−2014 period. The cross-sectional analysis shows that the EPU effect on SEO discounts is stronger for firms with greater dependence on government spending, less informative stock price, or a smaller EPU beta. Moreover, there are fewer SEO activities in periods when there is a high degree of policy uncertainty.
AB - Economic policy uncertainty (EPU) increases the cost of raising equity capital, especially when the economy is weak. A one standard deviation increase in the EPU index developed by Baker, Bloom, and Davis (2016) is associated with a 43 basis point increase in the price discount of seasoned equity offerings (SEOs) during the 2000−2014 period. The cross-sectional analysis shows that the EPU effect on SEO discounts is stronger for firms with greater dependence on government spending, less informative stock price, or a smaller EPU beta. Moreover, there are fewer SEO activities in periods when there is a high degree of policy uncertainty.
KW - Economic policy uncertainty
KW - Seasoned equity offerings
KW - SEO discounts
UR - http://www.scopus.com/inward/record.url?scp=85098537839&partnerID=8YFLogxK
U2 - 10.1016/j.jfs.2020.100841
DO - 10.1016/j.jfs.2020.100841
M3 - Journal article
AN - SCOPUS:85098537839
SN - 1572-3089
VL - 53
JO - Journal of Financial Stability
JF - Journal of Financial Stability
M1 - 100841
ER -